How to Stay Out of Debt with 1 Simple Trick – NSC Series

How to Stay Out of Debt with 1 Simple Trick

The most important thing to do when you are trying to get out of debt is learning how to stay out of debt. This may seem silly, but I’ve seen so many people try to pay off their debt and all the while, they are using credit cards for their groceries and buying more items with loans. The problem is that by using this method, these people will never achieve the ultimate goal: debt freedom.

How do you stay out of debt while you are striving to reach this goal, though?

The problem is that things come up. The car payment is overdue, but you just realized that you’re out of milk to make cookies for your daughter’s class, somebody gets sick and you have to go to the doctor, or you car breaks down and you’re stuck on the side of the road.

Unfortunately, all of these take what you don’t have: money.

Since you’re working to pay off your debt, you don’t exactly have a savings built up to cover these sorts of emergencies. However, there is one simple trick that you can use to save you thousands of dollars of debt and I’m going to tell you exactly how to do it.

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How to Stay Out of Debt with 1 Simple Trick

Last month my wife and I were headed to the grocery store when we noticed a light come on in our car: Airbags. Now, I bet you can guess what we were thinking and they weren’t exactly kind words. Lights coming on in the car is never a good sign, but when it’s something as dire as the airbags? You can’t simply let these problems go – having a working airbag can be the difference between life and death.

We brought the car into the shop, begrudgingly, and asked them to repair the airbag or whatever needed to be done. It turned out to be a computer chip that wasn’t functioning properly and cost us almost $400 to fix. Of course, they also did a free inspection while they were making the repair and ended up finding a few more problems that were going to cost around $900 to fix within the next few months. When we brought the car in to get those fixed, they found another issue.

We have a used car and we expected to have to make repairs, but they all came at us so quickly that we weren’t really sure what to do. Thankfully, though, we had planned for this type of expense and while there was an option to take our credit card and pay the amount without thinking about it: we didn’t have to. In fact, despite fixing each of these issues, we incurred no further debt.

How did we do it?

Well, the answer is pretty simple. We set up an Emergency Fund to catch all of the slack and unexpected expenses. Here’s how you can set one up to avoid incurring future debt because learning how to stay out of debt is the first step toward becoming debt free.

Setting Up an Emergency Fund

An emergency fund is typically $1,000 during debt repayment. However, I want you to think about it as one month’s expenses. For my wife and I, $1,000 covers a month’s worth of expenses (which can cover us for pretty much any situation).

Now, if you weren’t paying back debt, I would encourage you to work toward having a six month emergency fund in case somebody is laid off, disabled, or otherwise can’t work for a while. However, in this scenario, we are assuming that you are working toward paying off debt as quickly as possible, which means saving enough to cover 1 month’s expenses or $1,000 – whichever seems more manageable.

As for the rest of your savings? Other than retirement-type accounts and your emergency fund, I encourage you to use all of your savings to reach your goals of paying off debt (remember, I’m not a professional. Read the disclaimer below). Why? Because while those savings accounts may be accruing interest at a small fraction of a percent, your debt is most likely accruing it much faster.

In the long run, paying off your debt will likely save you more money than having any funds within a savings account. Keep in mind that this does not include retirement accounts which I believe are super important.

What if you don’t have the funds to create a $1,000 emergency fund?

This is where I would change your efforts. In order to get out of debt, you need to learn how to stay out of debt, right? And that means having an emergency fund to cover unexpected expenses (like your car that won’t stop breaking down).

Before you go putting extra money toward your debt, starting adding some to a savings account for your emergency fund. If you aren’t putting any extra toward your debt, either learn how to build a better budget or start by contributing $5-$10 a month. Soon it’ll add up. Perhaps in two months you can put $20 per month and a few more months down the line you’ll be putting $100 a month. Once you reach your goal of $1,000 or 1 month’s worth of expenses, you can start putting that extra cash toward your debt repayments.

How to Stay Out of Debt

Building an emergency fund can seem tedious. However, it is one of the first steps that you should take in order to reach your debt repayment goals. Learning how to stay out of debt means that while you are paying off your debt, you aren’t consistently incurring more. How do you build an emergency fund?

Work toward having one month’s worth of expenses or $1,000 in a separate savings account

Add a few dollars per month toward this account until you reach your goal

Use this account to cover unexpected expenses such as medical bills or car repairs

Don’t forget to pay back your emergency fund if you end up needing to use it!

Now that we know how to stay out of debt, let’s look at our quote for day 21 of the No Spend Challenge by Ernest Hemingway.

“Live the full life of the mind, exhilarated by new ideas, intoxicated by the romance of the unusual.” – Ernest Hemingway

This quote is where we have based our goals for this blog: living life to the fullest on a frugal budget. Because living life to the fullest is one of the most important things we can do. Paying off debt, saving money, these are all important in helping us to achieve our goals, but don’t forget to enjoy the beauty, the exhilaration, the intoxication of the every day.

What are your least favorite unexpected expenses?

Leave your response in the comments below!

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12 Replies to “How to Stay Out of Debt with 1 Simple Trick – NSC Series”

Excellent tip. Our least favorite unexpected expense, was more an emergency situation. Government shut down. My husband was out of work for 2 months, then it took another month to get his pay check going again. He was one of the unlucky ones who was in a situation where there was no backpay, so we had 2 months of getting being on our financial obligations….even after we exhausted our $2K emergency fund. It was a struggle, and took us over 6 months to get back to being caught up, but had we not had the emergency fund it would have been worse and we very well could have been homeless. So yes, it’s tough to build sometimes, but it’s worth it!

Wow! That’s quite the situation… And something that’s hard to plan for. Thank goodness you had a built up emergency fund to help you stay on track during that time! They’re so helpful, but it can be hard to ensure that they’re enough. In your case, it would have been hard to guess that that would happen, but thankfully you were able to recoup in a few months after. Thank you for sharing & commenting, Mary!

how to stay out of debt? I was one year, now I will start again for a mortgage… no more “out of debt” for me …
I will pay attention to not spend the emergency fund too, but this is sooo difficult in the period to move/redecorate a new house…

On the other part, the solution to avoid small debts is to close credit card. Yep, no credit card => no source of debt :)) – if I need something really really urgent – I cut from another part ( bills /fun budget etc); overwise it can wait.

That’s a great idea! We have our credit cards still, but we just paid them off and definitely don’t plan to rack up that debt again! Keeping the emergency fund is a great way to keep from using those. Also, having a mortgage is debt, but at least it’s toward a house that you are working on buying! Then you can continue your frugal living to pay off the mortgage. Thanks for the comment!

One of our goals is to build 3-6 months of saving. It isn’t something that is doable now while I am in grad school, but it definitely will be when we are both working. Something that helps us a lot too is we only buy a house based on what one salary can pay. Also, when we are both working we only live on one income still. It has given us a lot of freedoms that we couldn’t otherwise have. It can be very easy to feel that since we are both working we should be able to have more clothes or this and that, but the freedom of being debt free is better.

That’s such a great idea. Having an emergency fund can certainly be helpful, but having it to cover 3-6 months is the best because you know you are safe if something were to happen. Thankfully! It certainly helps to choose a home that you can pay on based on only one salary – that makes a big difference. Thank you for sharing, Autumn! I’d love to hear more of your story if you’re ever willing to share 🙂